The online games market in South Korea will surpass $1.7 billion by 2009, a new study from San Francisco's Pearl Research states.

This is up from approximately $1 billion in online gaming revenues in 2006.

But growth is becoming increasingly difficult, Pearl Research managing director Allison Luong tells Edge. "One of the biggest issues for South Korea itself as a country is that there are limitations to the country's growth. This is because so many people already own PCs and because of the country's relatively small size. The concern for everybody in South Korea is that it's at a saturation point."

According to Pearl Research, about 80 percent of households are connected to the Internet.

In the face of saturation, South Korean game companies are scrambling for ways to compel users to buy more content, Luong said.

Pearl Research's latest "Games Market in Korea" report said Tuesday around 67 percent of 20-30 year old South Koreans download paid content. Ninety-one percent of those who have bought online content purchased music, while 39 percent have bought community-centric virtual items such as avatars.

Pearl identified casual gaming as the fastest-growing segment. The popularity of gaming portals such as Netmarble, Hangame and Pmang help drive revenues, with an estimated 10 million Korean adults visiting such sites every month.

The desire to expand internationally has always been important to South Korean game makers, according to Luong, but as the market becomes saturated, and meaningful growth becomes more difficult, a new sense of urgency has arisen.

"They're trying to be very aggressive with U.S. and Asian expansion. ... Coming to the U.S. is difficult, because they have to compete with American companies that are much more familiar with the U.S. market."

Other hurdles for the South Korean online games market include overabundance of "me-too" titles and rising development costs, the latter of which has caused an uptake in mergers and acquisitions, says Luong.

"A lot of the bigger companies are getting bigger, and the smaller companies are oftentimes are being acquired by some larger companies. We're seeing a major split in the market."